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Walmart: Taking Stock and Looking Ahead

Presented by:
Leon Nicholas
Senior Vice President

March 2011

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Copyright 2011 Kantar Retail LLC (formerly
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The printing of any copies for back up is also strictly prohibited.

Disclaimers
The analyses and conclusions presented in this seminar represent the opinions of Kantar Retail
LLC. The views expressed do not necessarily reflect the views of the management of the
retailer(s) under discussion.
This seminar is not endorsed, or otherwise supported, by the management of any of the
companies covered during the course of the workshop or within the following slides.

Copyright 2011 Kantar Retail

Topics
Q4 2010 ResultsWhere does Walmart stand?
Spotlight on Key Tactics: Assortment, Promotion, Price

Supply Chain Matters


Beyond the Supercenter Standard
Looking Ahead: Thoughts for Suppliers

Copyright 2011 Kantar Retail

Sales and Comps Fiscal Quarters


Walmarts comps down seven quarters running
Walmart US Sales growth

Target Corp Sales growth

Walmart US Comps

Target Corp Comps

9%
8%
7%

6%
5%

4%
3%

2%
1%

0%
-1%

-2%
-3%
-4%
-5%
-6%
-7%

Q4 ' 08

Q1 ' 09

Q2 '09

Q3 '09

Q4 '09

Q1 '10

Q2 '10

Q3 '10

Q4 '10

We are disappointed by our Walmart U.S. fourth quarter sales


Mike Duke, Feb. 2011
Source: Company reports, Kantar Retail analysis

Copyright 2011 Kantar Retail

Walmart US Comments on Performance


Walmart US Q4 (ended Jan 31, 2011)

Net Sales
(USD billions)

Q4

%
Change

71.105

-0.5%

Comps
Operating Income
(USD billions)

-1.8%
6.021

4.8%

Walmart US Q4 Comments:
Traffic declined, but average
ticket increased slightly
Weak performance attributed to
GM, particularly Electronics
Gross margin % up 17bp
Solid opex leverage
Inventory up 8.2%

Softlines = negative
General merchandise = negative

Walmart re-asserted current


strategies to drive sales growth:

Non-edible grocery= negative


Health & Wellness =positive

Food = solid positive


Source: Company reports, Kantar Retail analysis

Copyright 2011 Kantar Retail

2010 Holiday Results


Q4 shoppers down 3%
Holiday gift shopper base down 2%
Average holiday gift ticket down
3.2% decline in % shoppers who
spent the most $ on toys at WMT

Q4 shoppers up
Holiday gift shopper base
up
Web traffic conversion up
+7.3% Nov/Dec
comps
Q4 shoppers up

Q4 shoppers up
Holiday web site visits
and conversion up
+2.6% Nov/Dec comps
Q4 shoppers up;#1 toy pref
Average holiday gift ticket
up; strong web conversion
Source: Company reports, ShopperScape, and Kantar Retail analysis

Copyright 2011 Kantar Retail

Walmarts Holiday Efforts Missed the Mark


Stores, circulars focused on basket EDLP with little
differentiation beyond price; store clutter effect?
Our holiday message is
focused on basket savings.
- Bill Simon, Nov. 2010

We believe our core customers are focused on


price, basics, toys for kids and practical gifts
we expect that a lot of the spending will come
close to Christmas. - Bill Simon, Nov. 2010
Source: Company presentation, Kantar Retail store visits, research and analysis

Copyright 2011 Kantar Retail

Slide 7

Walmart Today: Back to Basics

Wide assortment of national brands, focus on new & smaller items

We want to sell national brands

Promotional intensity

EDLP provides the foundation and path for growth

National brand POP overtakes the spark

All categories are win

EDLP/ rollbacks=pricing simplicity, basket focus; 1-stop shop

A very familiar and


comfortable direction Bill
Simon, March 2011

Action Alley is back

Power

Merch (buyers) and Ops (store mgrs)

More collaborative with suppliers

Careful investments in smaller stores, .com

Net: A focus on the


price/value shopper
with a wide assortment
of national brands at a
low, everyday price= a
more practical, tactical,
value-focused operator.

Sources: Kantar Retail analysis; Walmart Investors Day, Oct 2010

Copyright 2011 Kantar Retail

Walmart Today
Questions for Suppliers.and Walmart
Do 7 quarters of decline suggest
that issues beyond assortment
and pricing are at play?
Is a return to pre-Impact strategies
the right course of action for
Walmart?
Supplier Implication: Walmart needs supplier input
and ideas to restore shopper confidence as a
destination. Working with Walmart to
stabilize/restore traffic is Priority 1, 2, and 3.
Sources: Kantar Retail analysis

Copyright 2011 Kantar Retail

Slide 9

Topics
Q4 2010 ResultsWhere does Walmart stand?
Spotlight on Key Tactics: Assortment, Promotion, Price

Supply Chain Matters


Beyond the Supercenter Standard
Looking Ahead: Thoughts for Suppliers

Copyright 2011 Kantar Retail

10

Assortment: The SKUs Come Back

Source: Kantar Retail store visits and analysis

Copyright 2011 Kantar Retail

Slide 11

Shopper Awareness of SKU Increase


About three in 10 Walmart shoppers have noticed
Many (71%) have not
Have Noticed an Increase in Number of
Products Available at Walmart
(among past four-week Walmart shoppers)

No

Yes

71%

29%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

12

Big Thumbs-Up
Overwhelming share of shoppersnine out of 10say it is for the better
Have Noticed an Increase in Number of
Products Available at Walmart
(among past four-week Walmart shoppers)

Feels the Increase in Products


Is For the Better vs. For the
Worse

For the
worse

8%

No

Yes

71%

29%

For the better

92%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

13

Low-Income, With Kids Most Likely to Notice


Shoppers Who Noticed Walmart's Increase in ProductsBy Key
Demographics
29%

33%
27%

30%
25%

26%

Income

All Walmart
Shoppers

< $25k

$25k$49.9k $50k$74.9k $75k$99.9k

29%

27%

28%

All Walmart
Shoppers

1824

2534

31%

$100k+

28%

29%

28%

4554

5564

65+

Age

Source: ShopperScape, November 2010

3544

Copyright 2011 Kantar Retail

14

Changing Shopping Behavior?


Shopping Walmart More
Often

Buying More
Items per Trip

(among past four-week Walmart shoppers who noticed increase in products)

All
Walmart
shoppers
< $25k

30%
31%

$25k$49.9k

Income

29%

$75k+

29%

1834

35%
31%
35%
45%

3544
Age

35%

31%

$50k$74.9k

33%

4554
55+

34%

31%
20%

45%
32%
31%
30%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

15

Pallets: How it Looks Today

Source: Kantar Retail store visits and analysis

Copyright 2011 Kantar Retail

16

Alleys Before and After

Sources: Kantar Retail store visits

Copyright 2011 Kantar Retail

Slide 17

Pallet Awareness
Only three in 10 Walmart shoppers noticed!

Have Noticed an Increase in Pallet


Displays at Walmart
(among past four-week Walmart shoppers)

No
70%

Yes
30%
For the better

92%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

18

Low Income and Families More Aware


Shoppers Who Noticed Walmart's Increase in Pallets By Key
Demographics
34%
30%

30%

29%

27%

26%

Income

All Walmart
shoppers

< $25k

30%

31%

All Walmart
shoppers

1824

$25k$49.9k $50k$74.9k $75k$99.9k

$100k+

34%
29%

30%

29%

28%

4554

5564

65+

Age

Source: ShopperScape, November 2010

2534

3544

Copyright 2011 Kantar Retail

19

Are Pallets Driving More Shopping?


Pallets Causing Shoppers to Alter Basket Size
(among past four-week Walmart shoppers who noticed increase in pallets)

All
Walmart
shoppers

Buying more
items
18%

Income

< $25k

21%

No change
73%
67%

Buying fewer
items
10%
12%

$25k$49.9k

17%

$50k$74.9k

17%

77%

6%

$75k+

15%

77%

7%

1834
Age

3544
4554
5564

73%

30%
20%
14%
16%

65+ 6%

56%
70%

11%

13%
10%

78%

9%

73%

10%

89%

5%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

20

Do Shoppers Like the Pallets?


Have Noticed an Increase in
Pallet Displays at Walmart
(among past four-week Walmart
shoppers)

No
70%

Feel the Increase in Pallet


Displays Is For the Better vs.
For the Worse

Yes

For the
worse

30%

35%
For the better
65%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

21

Who Doesnt Like the Return of the Pallets?


Shoppers Who Think Return of Pallets Is For the WorseBy Key
Demographics
(among past four-week Walmart shoppers who noticed the return of pallets) 42%

35%

31%

32%

1834

3544

37%

34%

Age

All Walmart
shoppers

4554

5564

65+

42%
35%

32%

35%

33%

Income

Source: ShopperScape, November 2010

All Walmart
shoppers

< $25k

$25k$49.9k

$50k$74.9k

$75k+

Copyright 2011 Kantar Retail

22

Behavior Differs by Pallet Response


Pallets Causing Shoppers to Alter Basket Size
(among past four-week Walmart shoppers who noticed increase in pallets)

Those who like the


pallets are more
likely to buy more
(25%) than those
who dont like the
pallets are to buy
less (17%).

Buying more
items

All Walmart
shoppers

No change

18%

Like more pallets


("for the better")

Do not like more


pallets ("for the 4%
worse")

73%

25%

70%

79%

Buying fewer
items

10%

5%

17%

Source: ShopperScape, November 2010

Copyright 2011 Kantar Retail

23

Pricing: Renewed Focus on Basket EDLP


And longer-term, more collaborative Rollbacks

EDLP provides the foundation and


path for growth.
Bill Simon, Oct. 2010
Source: Kantar Retail store visit and analysis

Copyright 2011 Kantar Retail

24

Kantar Retail Pricing Study Results


Targets basket was
slightly less expensive
than Walmarts overall,
driven by HBA

TGT/WMT
index

Walmarts EDLP
positioned appeared in
practice; Target
leveraged promotions
January 2011 Results

Walmart
Target
Edible Grocery
$ 30.87 $ 31.19
Non-Edible Grocery $ 70.10 $ 72.48
HBA
$ 120.42 $ 111.59

Total $221.39

$215.26

Jun-10

Jan-10 Jun-09

Jan-09

Index
(TGT WMT)

Index
(TGT WMT)

Index
(TGT WMT)

Index
(TGT WMT)

Index
(TGT WMT)

101
103
93
97

103
94
102

98
97
96

103
101
101

111
93
98

100

97

101

99

Source: Kantar Retail research and analysis

Copyright 2011 Kantar Retail

25

Summary of Findings
Targets basket used
price promotions to drive
guests impressions and
achieve actual basket
price leadership.
Walmarts basket
reveals its return to an
EDLP approach.

Price Index of Target to Walmart:


Change Results Over Time
100%
90%
80%

70%
60%

130

50%

110-129

40%

90-109

30%

89

20%
10%
0%

Jan '09 Jun '09 Jan '10 Jun '10 Jan '11

Source: Kantar Retail research and analysis

Copyright 2011 Kantar Retail

26

Netting Out the Tactics


Assortment: Awareness could be
higher, but the result is strong so far.
Flip-side: Loss of clarity
Promotion: Mostly positive, though not
resoundingly.
Flip-side: Navigability compromised,
especially for older & middle class

Pricing: Total basket savings missing


the mark?
Flip-side: Is the EDLP/basket
approach the right one?

Supplier Implication:
Work with Walmart to
fine-tune tactics
would moderation
help? Bigger question:
Is this how you beat
Amazon and Aldi?

Sources: Kantar Retail analysis

Copyright 2011 Kantar Retail

Slide 27

Topics
Q4 2010 ResultsWhere does Walmart stand?
Spotlight on Key Tactics: Assortment, Promotion, Price

Supply Chain Matters


Beyond the Supercenter Standard
Looking Ahead: Thoughts for Suppliers

Copyright 2011 Kantar Retail

28

Supply Chain Focus


Back-end to front-end
Global sourcing via GMCs

Direct imports; LT partnerships


Joint procurement; collaborative sourcing
Increased local buying
Sustainable farming methods
MABD

CPU
RFID

Source: Company presentations, Kantar Retail research and analysis

Copyright 2011 Kantar Retail

29

The Demand Side of the Supply Chain


Online order to urban FedEx
locations
Site-to-Store, Pick-up Today
Drive Thru Site-to-Store service
Dry and non-edible grocery
available for online order
Site to Store offered at
Neighborhood Market
You'll also see us enabled by
learnings from our friends at
ASDA, pilot online grocery in the
coming year.
Bill Simon, Oct. 2010
Source: Walmart.com, Kantar Retail research and analysis

Copyright 2011 Kantar Retail

30

Stores as Distribution Touch Points


The differentiator between pure-play online
Shoppers Demands

Walmarts Position

Price

Save money, Live better


EDLP basket

Assortment

Mass merchandiser
Broad assortment

Customer Experience

??

Immediacy

Walmart US: 4,300+ stores


Over 8,600 stores worldwide

Having over 8,000 distribution points in 15 countries


clearly is a distinct advantage for us. - Wan Ling Martello, Oct. 2010
Source: Company presentation, Kantar Retail research and analysis

Copyright 2011 Kantar Retail

31

Supply Chain
Expect Walmart to continue to assert a
variety of supply chain effortsfrom
the back-end to the front-end-designed to reduce COGS

Supplier visibility and transparency are


the discussion points

Supplier Implication:
Keep supply chain
The notion of stores as distribution
issues front-and-center
points has significant implications for
in your planning
Walmart retailing in the U.S.watch for
efforts.
Pick-up today to develop

Sources: Kantar Retail analysis

Copyright 2011 Kantar Retail

Slide 32

Topics
Q4 2010 ResultsWhere does Walmart stand?
Spotlight on Key Tactics: Assortment, Promotion, Price

Supply Chain Matters


Beyond the Supercenter Standard
Looking Ahead: Thoughts for Suppliers

Copyright 2011 Kantar Retail

33

CAGR

Walmart Stores: US
2005 2015E

CAGR

'05 - '10E
-10.2%
7.8%
8.4%
2.6%

'10E- '15E
-19.0%
4.1%
15.4%
2.0%

Sam's Club

1.2%

1.5%

Walmart USA total

2.4%

1.9%

Discount
Supercenter
Neighborhood Market
Walmart US

Marketside
fading, Walmart to
add Express
format in 2011
Discount
conversions
to be ~70%
of new SCs

Note: Excluding Puerto Rico


Source: MVI-Insights.com

Copyright 2011 Kantar Retail

34

Tiered Portfolio Strategy


Urban and smaller format efforts
Urban
New SCs
will continue
to get
smaller

To open
30-40
medium
and small
format
stores in
2011

Suburban

Rural

Large stores
(60,000 sq. ft + )

Medium
stores

Established
presence

(30,000-60,000 sq.
ft)

Some store
presence
Limited to no
store presence

Small stores
(< 30,000 sq. ft)

There are hundreds and hundreds, if not thousands, of opportunities in the US


for small formats. Some of them would be in fill in markets that are already
developed. But many, many of them exist in markets, urban and small town, where
we have no market share or next to no market share. - Bill Simon, Oct. 2010
Source: Company presentation, Kantar Retail research and analysis

Copyright 2011 Kantar Retail

35

Neighborhood Market
Rogers, Ark.

Also seeing other remodeled NMarkets with

Enablers to Neighborhood Markets expansion:


Assortment mix and importance of the Prescription
New merchandising approach now differing from SCs
Operational structure market managers roles redefined
Source: Kantar Retail store visit, company presentation

Copyright 2011 Kantar Retail

36

Supermercado de Walmart
Focused on Fresh & Hispanic tastes
Locations in Phoenix and Houston
Unique Fresh & Hispanic offerings:
Specialty meats include milanesa,
diezmillo, fajitas, & chuleta de cerdo
Bakery fresh corn tortillas & over 40
sweet breads
fresh tropical fruits and vegetables

Bilingual staff and signage


We are very pleased with the
performance we have now the
model that will allow us to expand
- Eduardo Castro-Wright, Oct. 2009

Source: Kantar Retail store visit, research, and analysis

Copyright 2011 Kantar Retail

37

Walmart Express stores to open in Q2


Assortment will be key
This will be a new format for both rural and urban locations.- Bill Simon, Feb. 11
Will Walmart Express draw from learnings of these concepts?

Walmart on Campus

Rogers, AR Site in Hospital

Might the new format open in these locations?

26K Site purchased in Chicago, IL

32K Site purchased in Downey, CA

Source: Company reports; Kantar Retail research, store visits and analysis

Copyright 2011 Kantar Retail

38

Mobile and Web Channel


Clearly digital is playing a huge role.
Mobile's becoming significant...
-Stephen Quinn, Oct. 10

Customers are also spending


more time researching online and
looking for multi-channel
solutions.
Bill Simon, Nov. 2010

87% of our core customers have


access to online and the Internet
and they use that to help them
with their retail purchases.
Bill Simon, Oct. 2010

Source: Company presentations, Kantar Retail research

Copyright 2011 Kantar Retail

39

Formats and Channels


Walmart continues to invest in the
Supercenter format
At the same time, growth and
opportunity seem to be in smaller and
online formats
Will Walmart invest rapidly enough? Is
an acquisition in the future?....

Supplier Implication:
Expect a multi-format
Walmart in the future
despite todays more
cautious approach.

Sources: Kantar Retail analysis

Copyright 2011 Kantar Retail

Slide 40

Topics
Q4 2010 ResultsWhere does Walmart stand?
Spotlight on Key Tactics: Assortment, Promotion, Price

Supply Chain Matters


Beyond the Supercenter Standard
Looking Ahead: Thoughts for Suppliers

Copyright 2011 Kantar Retail

41

Stock-Up Shopping
Implications for a 1-stop, basket approach?
Engaged in Activity on Last Supermarket Shopping Trip
44%

42%
36%
32%
28%
18%
14%

Immediate use
trip

Fill-in trip

Search out
sale items

Stock-up trip

Search out
coupon items

Browse
Buy special
for new
occasion items
items/items of
interest

Source: ShopperScape, JanuaryDecember 2010

Copyright 2011 Kantar Retail

42

Less Stock-Up Shopping.


Shop Weekly
32%
29%
34%
33%
33%
29%

Walmart

8%
10%
11%
10%
11%
12%

Target

Kmart

Reason for Last Dollar Store Trip

29%

2005
2006
2007

4%
4%
5%
4%
5%
4%

2008

19%
21%

Impulse trip; no particular


purchase in mind

2009

27% at $
General

2010

Planned grocery fill-in trip

16%
21%

Planned bargainhunting/treasure hunt trip

22%
16%

Shop 13x a Month


29%
29%
29%
29%
29%
32%

Walmart

24%
23%
27%
25%
24%
25%

Target

Kmart

36%

Planned general
merchandise trip

13%
10%
13%
10%
10%
10%

Planned grocery stock-up


trip

16%
15%

May-09
May-10

Source: ShopperScape, October 2005 2010

Copyright 2011 Kantar Retail

43

The Pricing Conversation is Evolving


Pricing complexity
Simultaneously:
Transparency for shoppers
via online tools

Customization of pricing
takes the tactic out of the
public domain

Source: Kantar Retail research and analysis

Copyright 2011 Kantar Retail

Slide 44

New Media Explodes


Comparing then and now

Info / Entertainment

1980s-1990s
TV, Print, & Radio

2000s-2010s

Projected
Mass
audience
Prepared
Restricted
Uninvolving

Social Relations

Landline Phones
Set structure
Linear
Stationary

Source: Kantar Retail research and analysis

Copyright 2011 Kantar Retail

Slide 45

New (Old?) Concerns


Back to the future?

Has the pendulum


swing too far back?

Is Walmart returning to the very conditions that generated


Project Impact in the first place?
How do suppliers align with a retailer whose brand equals
the sum of national brands? Is the ROI still there?

Will middle class+ shoppers stay?


Is price as relevant if its matched or beaten by others?
Does a focus on Supercenters, Action Alley, basket pricing,
and 1-stop shopping sidestep the issue of their relevance?
Is Walmart returning to a place of perceived comfortbut
one that had already run its course in 2007?
Did PI have the right ideajust poorly, and too radically, executed?
Source: Kantar Retail analysis

Copyright 2011 Kantar Retail

46

Retail Landscape

Differentiation

Comparability

Source: Kantar Retail analysis; Kantar Retail store visit; company websites

Copyright 2011 Kantar Retail

47

Considering Walmarts Direction


How are they positioning for future relevance?

Health & Wellness

Sourcing &
Supply Chain

Private Label

Customer
Communication

Resource
Utilization

Global
Presence

Multichannel Selling

Source: Kantar Retail research and analysis

Copyright 2011 Kantar Retail

48

Embracing its Future Fast Enough?


Staying Too Long in the Past?

Source: Kantar Retail research, analysis, and store visits

Copyright 2011 Kantar Retail

49

For SuppliersPartnering with Walmart


The Parallel Paths
Convergence

Mid to Long-Term
Moderate SC tactics
Near-Term
Restore traffic
Make EDLP fun

Create in-store
excitement
Accelerate new
products

Accelerate small
store opportunity
Expand online reach
Leverage new
technology
Capture aging
Boomer and Gen Y
shopper needs

Sources: Kantar Retail analysis

Copyright 2011 Kantar Retail

50

THANK YOU.
QUESTIONS?

Leon Nicholas
Senior Vice President
leon.nicholas@kantarretail.com
T + 1 617 588-4146
M+ 1 603 770-9687

245 First Street


Floor 10
Cambridge, MA
02142

www.kantarretailiq.com

2011.Kantar. No part of these materials may be


used, reproduced or adapted without the prior
written consent of the copyright owner. All rights
reserved

Copyright 2011 Kantar Retail

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